ECONOMY: US-Australia Free trade agreement and the national interest

by Colin Teese

News Weekly, April 10, 2004

Australia's conclusion of negotiations with the United States of a so-called free trade agreement (FTA) raises many important issues. The first, and overwhelmingly the most important, issue is whether the agreement serves, or goes against, the national interest.

In a serious negotiation with a major economic power, it is unrealistic to hope that we can gain more than we give. But at the very least, our negotiators, and the government on whose behalf they negotiate, should aim to achieve some kind of a balanced outcome. Balance is a question of what one side is prepared to give in order to get what it wants.

If the negotiations proceed on this basis, then we can be reasonably assured that the outcome, overall, will be balanced and fair to both sides.

As it happens, any reasonable examination of what we have agreed with the US certainly does not seem at all balanced - nor does it seem fair to both sides. Most of the items on the US wish list we appear to have granted. Despite this, the US seems to have resisted most of our demands. The fact that the government has all but conceded this, has not stopped it from insisting that the agreement is good for Australia.

Of course, the last word has not yet been said on the document. To the extent that legislation is required to give effect to the FTA it will require the approval of the Senate. And a Committee has been set up under the Chairmanship of Senator Cook to consider the FTA. On the face of it, the document is so obviously and so much in the favour of the other side it hardly seems possible that the Senate Committee can come out in support of it. Yet we can by no means be certain of that outcome.

The Chairman of the Senate Committee is a former Minister for Trade in the previous Labor Government. And that, in itself, is a cause for concern. It might mean that his influence on the Committee will cause the document to be considered, less for what it is, than for what it might seem to be through the eyes of a Trade Minister.

Why the concern? Because as a Trade Minister, Senator Cook demonstrated a greater devotion to the virtues of free trade as an ideology than has ever been the case with Minister Vaile. Would he, for example have been any less willing to accept the idea of giving the US duty-free access to the Australian market for all its agricultural exports, without anything remotely comparable in return?

Had Senator Cook been at the negotiating table rather than Mr Vaile, we can expect that he would now be out there selling its virtues as if his life depended on it.

Certainly, he would want us all to look at it from the point of view of his own deep-seated commitment to the virtues of the peculiar form of free trade ideology which seems to have infected both sides of Australian politics.

But the reality is that, outside Australia (and possibly New Zealand), the degree of commitment to the practice of free trade is highly qualified. They are right to be sceptical. The textbooks tell us free trade's main benefits flow only when it is accompanied by perfect competition and full employment.

Other countries recognise this and accordingly qualify their acceptance of its application. They readily accept the need to limit access of foreign goods into their markets in certain circumstances - and particularly, where imports will damage their local industries. Two typical examples relate to "dumped" goods, and to quarantine restrictions.

The term "dumping" refers to goods exported at less than the price the exporter charges in the home market. For producers with a very large domestic market, surplus output can be sold overseas at such low prices as to destroy domestic production in the importing country. In some cases that is their purpose. This possibility is specifically recognised by the World Trade Organisation (WTO). Importing countries are permitted to apply trade barriers against dumped imports to protect their domestic producers.

These rules are routinely applied against offending imports by most of our trading partners. The United States, for example, has its own rules which are more restrictive than those of the WTO. So does the European Union. Australia should be doing the same. By virtue of the smaller scale of its economy, it is less able than any of the economic giants to withstand the damaging impact of dumping. Yet we have the most permissive of dumping rules. Our rules are less strict than those allowed by the WTO.

Why? Because those shaping trade policy and guiding the minds of ministers, have persuaded politicians that permitting dumped imports benefits Australia. If some other country wants to send us subsidised goods, why should we not allow our consumers to have them? They go further. If our producers cannot meet import prices, for whatever reason, they should not be in business.

What this view ignores is that, if we overlook dumping, then there is nothing we now make here that cannot be bought cheaper overseas. The question then is, how do we pay for it? And remember, we are already borrowing heavily offshore to fund present levels of consumption. (see page 10)

Much the same arguments apply (in Australia) to quarantine restrictions. Our proponents of free trade insist that, for the most part they are disguised trade restrictions. And they seem to have persuaded - or intimidated - our quarantine bureaucrats and politicians of this. Again, we choose, for some reason to ignore the rights for protecting our health standards which WTO rules provide, and which others freely use.

Contrary to the way those rules are being interpreted by our quarantine people, it is not necessary to provide absolute scientific proof of the need to keep out diseased imports. Such proof is impossible and the WTO recognises this. What is required is no more than a respectable scientifically-based argument in favour of what we want to do.

Australian quarantine officials have behaved poorly over this issue. Whenever a trading partner questions our rules and advances its own scientific opinions in support of them, and threatens WTO action, our officials seem ready to accept other opinions as fact.

Misguided

Here, as in dumping, the pervading influence of a misguided and narrow free trade philosophy threatens to destroy our capacity to ban imports which could harm plant, animal and human health.

Once, governments of any persuasion would not have permitted trade ideology to undermine such important safeguards.

And it is not as if the proponents of unqualified free trade feel bound by any need for consistency. Dumping and quarantine restrictions are to be opposed because they deny the consumer cheaper goods. But what about the import of pharmaceuticals? Here, the same group readily accepts a so-called FTA with the US which will require us to pay more for imported drugs. The same can be said for the rules applying to so-called "intellectual property".

In signing up to an agreement on this we have been required to make laws which make it impossible to sell cheaper copied versions of labelled goods. Whatever happened to the idea of consumer choice and the cheaper alternative?

It's less a matter of free trade than prevailing wisdom as to how trade policy should be formulated. Never mind about common sense, national interest, or, for that matter, the commitments we have undertaken in the WTO.

The point has been made before but it's worth repeating: Australia's free trade agreement with the United States is not a genuine free trade agreement, but a bilateral agreement, covering only parts of our trade. And it is not the only one.

Selective, bilateral trade agreements are proliferating around the world. We can't say for certain, but it seems that, ultimately, they may come to supplant the WTO - or at least to reduce it to irrelevance. And, by contrast with the WTO - which, for all its faults, at least covers everything - the bilaterals will all exclude sensitive areas of trade. This process will, in all likelihood and by stealth, create a system of regional trade blocs.

But back to the current FTA. All kinds of justifications have been advanced by the government. In the beginning it was to be "trade flows", then it was "intangibles". Now what is being said is that the US is vitally important to us and that, because others are concluding FTAs with them, we cannot afford not to have one.

Well, if this is so then we should have been much more careful in deciding what we wanted to have. Presumably, the government knows of some countries which have concluded better agreements with the US than have we - access to US government contracts, for example. Some have been given access to many more US State government contracts than has Australia. The Senate should be asking the Government, why?

No matter from what perspective the FTA is considered, we do not seem to have emerged from it very well. On the face of it, one would assume that there was a reasonable prospect that a Senate Committee, which allowed itself to uncover all of the facts, would reach the same conclusion. But to assume that overlooks the power of Senator Cook as chairman, to influence committee proceedings.

Let us hope he is not disposed to follow the lead, and the arguments, already made by the government.

It will be up to those opposed to the agreement to coordinate sufficiently strong and persuasive contrary arguments for the Senate Committee to consider.